Portfolio

Sunday, April 03, 2011

Where are all the Euro talent acquirers?

Facebook, Google, Microsoft et al routinely make 'talent acquisitions'.
In the last 10 years, Google has made 93 acquisitions - the majority of these have been to get their hands on the talented founders and teams who have built some technology or have demonstrated such a capability. 75 of these acquisitions have been in North America and most of these in the San Francisco Bay Area.Microsoft have made 140 acquisitions in the last 20 years - again the vast majority in the US.Yahoo made 62 acquisitions in 15 years - only 10 outside the US.

The possible answers to why the predominance of targets are US based are these:
1. They have better engineers in the US. [this I very much doubt - though no doubt I'll be corrected]
2. Tech companies in the US are building stuff targeted to be bought by one of the big boys.
3. If you're going to buy a company for their talent - you want to keep that talent and integrate it with your own operations or development teams.
4. The eco-system is such that the corporate development teams know the startups and vice versa. Not just know them but meet regularly at the many events and in the coffee bars on University Avenue and elsewhere.
5. Buying a talented team elsewhere (ie outside the US) is risky - there is the cultural gap, the legal hurdles, the distance, the time shift etc

These transactions - 250 of them between just the 3 mentioned - power the whole ecosystem. The funds generated for the founders, the VCs, the LPs are considerable and get recycled in a sometimes perfect virtuous circle.

3 comments:

It's a good question. There are a few pieces to the puzzle that I think outweigh the ones you mentioned.

European companies like to be acquired rather than go all the way. Even Skype sold themselves, which seemed odd even at the time. Lots of relatively big European startups decide to sell out rather than see if they could become the platform company that acquires others.

This also depends on funding levels. Consider Playfish versus Zynga. Playfish got a hefty $21 million in funding in 2008, but in that same time period Zynga pulled in $39 million. Playfish decided to sell out, and Zynga became the category leader (with a mind-blowing $480 million in funding since). Philosophy and personal wealth (Mark Pincus already had sold a couple of companies) had much to do with that, but perhaps the war chest played a role as well.

In contrast, European companies don't seem to like being the acquirer. Look at SAP versus Oracle.

Europe is also still paying the price for not creating more winners over the last 15 years. Apart from Skype, I can't think of any European companies playing in the same league as Yahoo, Google, Facebook, etc. Not only does that limit acquisitions, it means those investment returns to founders and investors never flowed back into the ecosystem. So we're stuck playing catch-up.

The real trouble is that this feedback cycle is an ongoing one. European companies selling out for a few hundred million now won't grow to be tomorrow's patron companies (in Mark Suster's words). I certainly can't fault those teams for selling, of course, but it does shape the landscape.

The EU has itself been looking into this and concluded that it is a function of the size of the home market. Going to the next country with an idea is loaded with problems - even the cloud regs change across borders. IT Europa has been reporting on this for years, but national interest always seems to win.

The companies do "talent acquisition" simply because there is no easier way to grab all those talented people. In Europe the market is less hot and hence you can recruit talented people even the "normal" way.